West Africa's positive developments for private equity

West Africa region, often known as the place of political instability, has in the past month been home to several developments for dealmaking in the private equity industry.

For decades, West Africa – defined by the United Nations as 16 nations in the northwest portion of the continent stretching from Nigeria in the southeast to Mauritania in the northwest – had among other difficulties seen its business community face the dual challenges of poor corporate governance standards and a shortage of available capital.

Public markets like Nigeria’s, the largest in the region, are providing solution to those problems. The maturation of the Nigerian stock exchange has been important, and it’s been important not only for the value associated with having a market that is large enough to permit Emerging Capital Partners (ECP) to exit some fairly meaningful investments.

But the value of the stock exchange, the improvement of the stock exchange goes beyond that because it really suggests a number of things: an improved regulatory environment, that there are more local institutions that are keeping money in Nigeria and investing in Nigerian companies rather than taking money abroad. The country’s deregulation efforts in the financial sector as a major growth driver, not only for Nigeria but for the rest of the region as other West African countries consider similar regulatory changes.

ECP has owned or currently owns several portfolio companies on the Nigerian exchange, which has grown its annual value traded from $2 billion in 2005 to $17 billion in 2007, according ECP. Those companies include Continental Re, one of the largest reinsurance companies in Nigeria, and Ecobank, which is also listed on the Ghana and Cote d’Ivoire exchanges.

Although lacking its own exchange, war-torn Liberia has also publicised policy efforts in recent weeks that could make it a fresh destination for private equity activity.

Earlier this month, the Liberian Electricity Corporation disclosed that it was seeking roughly $200 million in private investment to repair a primary hydroelectric facility. The call for private capital is part of the Liberian government’s broader program to funnel money into the nation’s decrepit energy infrastructure.

Private equity involvement in sub-Saharan African energy infrastructure is not without precedent.